The blame for payroll errors is on the employer

At the end of last year we shared a story about a landmark case in which an employee in California, Sharmalee Goonewardene, sued her employers due to errors in her time sheets that resulted in her being underpaid by over $6,000. What made this unusual is that she added the company that her employers outsourced their payroll to, ADP, as a defendant. She said that by paying her inaccurately, ADP had therefore “committed unfair business practices”.

Employers and payroll providers (including us!) alike have been waiting with baited breath to see what the court ruled – would this set a precedent for payroll providers to be subject to third party liability in ensuring the information they are given is correct? Or would their responsibility end with processing the information they are given correctly, putting the onus on the employer to ensure there are no mistakes?

We finally have our answer. The California State Supreme Court has ruled in favor of payroll companies, coming to a unanimous decision that “an employee is not a third-party beneficiary of the contract between her employer and its payroll service provider” and that ADP did not commit “third-party breach of contract, negligence, and negligent representation”.

This is obviously good news for payroll providers, but employers now have confirmation that the ball is firmly in their court when it comes to getting payroll data correct. There’s nowhere you can fall back on if something goes wrong and one of your employees gets underpaid. So, how can your decrease the risk of errors in the first place?

1. Don’t be a statistic. If you outsource your payroll to a large, faceless corporation you are at risk of getting lost amongst thousands of other employers and becoming just another number. This makes mistakes a) more likely and b) harder to spot.
2. Get a personalized service. Find a payroll provider that cares enough to ensure you have a named payroll manager who will get to know your company just as well as you know it. They’ll be on the look out for mistakes and discrepancies on your behalf too.
3. Check, check and check again. Don’t become complacent with your own data or with the people who are going to process it on your behalf. Set clear guidelines with your managers to ensure data is coming to you in a format that is accurate and easy for you to check through. And of course, make sure you choose a payroll provider that you can trust, with all the necessary accreditations and preferably some awards to boot, to put your mind at ease that they are amongst the best in the business.
4. Set a deadline. Have a clear deadline as to when data has to be finalzsed by, and make sure this is within a parameter that gives everyone enough time to be thorough and precise. Rushing around with data at the last minute is a sure-fire way to increase your chance of errors.

So, payroll providers are off the hook for now. But that doesn’t mean that anyone can kick back and relax about payroll – you as the employer need to ensure you’re doing everything to secure the accuracy and security of your employees’ payroll data, and we as providers need to guarantee that we are processing the information we’re given exactly as it needs to be processed.

Payroll is one of the most important (and for staff, probably THE most important) aspects of any business and it’s not a task to be undertaken lightly for anyone involved.